International status of CDM

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International Conference Organized by Gazprom
and Carbon Agency B.V International
Conference Kyoto Protocol and Carbon Market for
Russian Enterprises Emission Reduction Purchase
Agreement (ERPA) Content and Practice John
OBrien Moscow, Russian Federation April 26th ,
2007
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About Me

• Working in Climate Change since 1994 in New York,
  London, and Moscow
• My own company in New Zealand Carbon Market
  Solutions? (3 of first 4 JI deals)
• Working in Russia since 2003 and 2006/07 with C6
  Capital

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Content of Presentation

• Main Features in an ERPA
• Who are the the Buyers?
• What are they looking for?
• Risk Management for the Seller?
• Barriers to Signing ERPAs in Russian Federation
• Future Evolution of ERPA contracts as Carbon
  Market Evolves
• New Zealand Carbon Market

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Main Features of ERPA

• Conditions Precedent
• Price Volume Vintage
• Up-Front Payments
• Delivery Date
• Failure to Deliver
• Force Majeure
• Governing Law
• Sellers Role (Agent/Principle)
• Start with Termsheet (ERPA can be 50 page
  document)

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Who are the Buyers? (Part I)

• Worldwide demand for emission reduction 700-800
  MtCO2eq/yr
• Russia alone could supply 600 MT/year of
  AAUs/ERUs (IEA estimate) - mostly AAUs
• Interest in Russia significantly reduced by lack
  of procedures
• Main Buyers Europe Japan, lesser extent Canada
• Main Buyers are Governments, Compliance Buyers
  (private companies), Hedge Funds, Banks, Trading
  Companies
• First World Bank and Dutch (now many)

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What are Buyers looking for inan ERPA?

• Stable and Creditworthy Counterparty
• Experience in undertaking similar projects
• Proven technology
• Resource Consents Project Finance in Place
• PDD and Validation Report (project is
  additional)
• Host Country Approval

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Risk Management for the Seller

• Force Majeure (Host Approval, JI Track 1 v 2 etc
  )
• Sell a Conservative Volume with Option for Extra
• Do not enter into guaranteed delivery contracts
• Ensure generous failure to deliver clauses
• Delivery Date as far into future as possible
• Take out delivery guarantee insurance

Source PointCarbon Sept 03
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Barriers to Signing ERPA in Russian Federation

• Lack of Procedures
• Russia Track 1 v Track 2
• Guarantees/Penalties for Non-Delivery
• Lack of Precedents

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Future Evolution of ERPA

• Standardized Contracts
• Post 2012 provisions (depend on negotiations)
• Stronger Dispute Resolution/Failure to Deliver
  Clauses this will be invoked often
• More complex contract structures

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About New Zealand Climate Policy

• New Zealand is Annex I Party
• Target of zero percent below 1990 levels
• Net Deficit likely to be 30-40 MT CO2e
• DNA Climate Change Office Ministry of
  Environment
• New Zealand - Track 1
• Main Emissions from Transport and Agriculture

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New Zealand Climate Policy - 2

• Projects to Reduce Emissions Mechanism (PRE) -
  ERUs/AAUs - 10 million tons
• Permanent Forest Sinks Initiative (PFSI)
• Future Domestic Emissions Trading Scheme
  (forestry sector, power sector)
• Growth in VER Market
• Deficit cannot be done by domestic measures alone
  - purchase Russian AAUs/ERUs